With the rupee recovering substantially against the dollar, the comparison that the economy is attracting at present is that with the Indian cricket team, at times individual players. Several economists, including the current RBI governor Raghuram Rajan, have lamented the manic-depressive treatment meted out to both Indian sporting stars and economic and financial advisers, catapulting them to god-like status when they scoop up victories on the gladiatorial cricket ground or economic amphitheatre, and on the other hand, bringing them down in a jiffy when they lose a game. Rajan and others have pointed out that while we overlook the systemic weaknesses during phases of success, we tend to blow them out of proportion and resort to scaremongering when temporary failures set us back. Clearly, this diagnosis of the economy is an apt one, given the speculative attack that our currency suffered in the wake of an impending crisis in the form of the imminent US-led Syrian intervention and gaping current account deficit, of about $80-billion a month, thanks to the phased withdrawal of the short-term stimulus packages and hot money that the US had pumped into the global market, thus artificially propping it up and shielding it from an even larger crisis. With the Syrian intervention now on hold, and the RBI having taken steps to boost foreign fund inflows and dollar sales by exporters, the rupee has witnessed a boost that is less of a miracle and more of an outcome of persistent efforts and diplomatic parleys by both the new governor of RBI, Raghuram Rajan and Prime Minister Manmohan Singh, who asserted, at the recent G20 meet at St Petersburg, Russia, the sustained need for FIIs and capital inflow for the global, particularly the developing and emerging, markets. Hence, the rupee’s north-bound journey, after nose-diving to a dreadful 68.85 against the USD some days back, is a heartening development and its appreciation by 46 paise to close at 63.38 on Wednesday is, therefore, good news for all.
Rupee’s dramatic fall and recovery since then point towards the nature of attack on the Indian currency, which was the side-effect of a wider ripple of disruption running through the emerging markets that saw shrinkage with the US Federal Reserve’s decision to call back liquid dollars from the global capital circuits. With the Syrian crisis looming, and with the capital inflows slowing down, the economy had been going through a rough patch that, however, had been predicted by some prescient whiz-kids of big business. While many blamed the RBI’s refusal to relax bank norms to borrow fund from overseas under the governorship of the former chief D Subbarao, the fact remains that had it not been for the former governor’s firmness, bad capital from unreliable sources would have inundated our markets more, particularly the small and medium enterprises, thereby blowing in more volatility in our economy. With SEBI and RBI now having relaxed the lending and borrowing norms, with a SEBI report stating that FIIs hit a $421 million on Tuesday after the slew of measures taken by Rajan, the picture is looking good again. However, the rupee crisis was a combination of domestic and international quagmire, with the massive CAD coupled with fears over crude prices shooting up causing a mass panic in the share market. However, now that the geopolitical tensions have been eased a bit, the currency has recovered and it looks poised to even come below the 60 mark against the USD, if the measures unleashed start showing results. Not does this come across as a silver lining in the horizon after days of dark cloud shrouding the financial firmament, but it also confirms the market’s bipolar behaviour when it comes to dealing with crises, whether of the currency, or current affairs.